Is dropshipping dead?
Of all the ways to get started in ecommerce, dropshipping is probably the most popular way. That’s because it has almost no barrier to entry. All you have to do is pick the products you want to sell and start selling them. You don’t have to deal with any of the inventory or shipping issues most ecommerce business owners have to go through.
But it’s 2021 now and things have changed.
So we’re going to do a deep dive on this topic and give you my personal opinion about the dropshipping business model.
What Is Dropshipping? Is Dropshipping Profitable?
Let’s start with the basics…
Dropshipping is when you work with a manufacturer who creates their own brand of product and they ship it for you. In this business model, you don’t own anything. All you have to worry about is your Shopify store and the marketing that goes into selling the product. When you make a sale, it goes directly to your manufacturer. They make the product and ship it for you.
Normally, dropshippers will work Chinese manufacturers. This leads to the infamous 2-3 week shipping times dropshippers are known for. Sometimes though, you can work with dropshipping manufacturers in the United States to fix this problem. Regardless of where you do the manufacturing though, the business model is the same.
It’s important to differentiate between the shipping model and the business model too.
Technically, dropshipping is just when the manufacturer ships the product for you. This is a very helpful service that most ecommerce business owners would be happy about. However, most dropshippers specifically do it the way I’ve described above, which is usually associated with AliExpress, but not always.
Now, is dropshipping profitable?
The short answer is hell no.
The long answer…
Why Dropshipping Is Dead In 2021 And Why Everyone Should Avoid It Like The Plague
Not only is dropshipping dead in 2021, but it’s always been dead.
People who are “successful” in dropshipping will tell you I am a liar and pessimist for telling you this. Then they’ll show you their “amazing” Shopify screenshots as proof. Sure, some people will do well with dropshipping. But if I’m giving advice to my own son about what business to build, I would tell him to avoid dropshipping like the plague. Here’s why…
Slim Profit Margins
The foundation to all of success in ecommerce is your profit margin. Out of all the ecommerce business models though, dropshipping has the absolute worst margins. The reason for this is that the business model incentivizes for this. You are selling cheap products with additional discounting and having it shipped for you. By the time the product gets to your customer, you’ve already lost most of the potential money you could have made. This is one of the biggest reasons why real brands always either go private label or custom.
No Ownership Of Anything
In dropshipping, you own absolutely nothing. Except for your Shopify store, of course. This means you’re not building a real asset. You’re basically being a glorified affiliate marketer. Sure, you can make some money doing this. But if you think you can build a full time income as a dropshipper, you need to rethink your life decisions. Much less build a business that can be sold at a multiple, which is where the real money comes from in business.
Horrible Customer Experience
As explained earlier, dropshipping is known for 2-3 week shipping times. It takes this long because most dropshipping products are made in China. But guess what? No one wants to wait 3 weeks to receive their jump rope. Especially in a world where you have 2 day shipping like Amazon. This leads to a horrible customer experience, which then leads to horrible business.
Cheap, Generic Products
One of the most important parts of ecommerce is to sell a unique and ideally expensive product. But with dropshipping, that’s not an option. You’re stuck selling what anyone else can sell tomorrow. There is no barrier to entry. This leads to an insane amount of competition. Why should I buy your cheap, generic shoes when I can just buy Nike shoes for the same price? It’s not a business model that creates the halo effect usually seen in strong brands.
Not A Sustainable Business Model
All in all, if you want a business that’s going to last for years to come, it’s not going to be dropshipping. Most dropshippers are lying about their revenue and those that aren’t are usually lying about their profit margins. Only a few people ever succeed in dropshipping despite all of its drawbacks. And sure, private label and custom also have their own drawbacks. But the problems in dropshipping are so foundational and it’s not a business even worth starting.
The only time I suggest you build a dropshipping store or even a print on demand store is if you want to test your marketing skills without having to answer to clients. It’s a good way to practice marketing stuff online. Just don’t expect to make any real money from it and you’ll be OK.
What To Do Instead Of Dropshipping
Is dropshipping dead? For the millionth time, yes.
Fortunately, there are plenty of other things you can do that are much more profitable and much more likely to succeed than dropshipping. More specifically, this means once you have a few ecommerce business ideas, you want to look into going private label and/or custom.
Private label is when you slap your logo on an already existing product.
The pro of private label is that you are now selling your own brand. It’s a real asset that can be differentiated with branding. It’s also pretty fast and cheap to get started. In many cases, you can start with just a few hundred dollars. The con is that you have to deal with inventory and shipping. That might seem like a huge problem, but it really isn’t. Once you realize this, you’ll understand that dropshipping vs FBA is a clearcut answer between the two.
Custom is when you create a product from scratch or modify an existing one.
The pro of custom is that you can have tangible USP, which is important to stand out, charge higher prices, and reduce your customer acquisition costs. This is where all the most successful ecommerce companies focus because it leads to the best products. The con is that it’s by far the most expensive, slowest, and complicated option. If you want to start a supplement brand, it would cost $500 or so for private label. For custom? At least $10,000.
You can also do both, which many brands do.
You can launch your brand with a custom product to spearhead your marketing efforts, then support it with multiple private label products. You can also start with private label, sell them to raise funds, and then launch a custom product to spearhead your business and take it to new heights. Both options work, although it’s typically better to start with custom whenever possible, sell at a small scale like a pop up shop or on your own Etsy store if it’s a handmade product, and grow from there.
Maybe one day you can even get your product in stores like Walmart!
In all cases, these are much better options than dropshipping. So stop asking, “is dropshipping dead”. It is. So if for some reason money is a problem, just go straight to private label rather than dropshipping. You’ll be much more likely to succeed with the same skill set.